Finance 363 Class Notes

Finance 363 Class Notes - Fin 363 Fall 2011 Robin Grieves...

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Fin 363 Fall 2011 Robin Grieves Finance 363 French Adage: First you murder, Then you steal, and, finally, you are reduced to discourtesy. Contact information: more 476 Email: [email protected] Phone: 803-777-7632 Office hours: Monday 9-12 (appointment and drop in) Why Finance? Relevant: manage money and Capital: Rapid Advancement in Responsibility: Your Decisions Matter Interesting puzzles Gold Mining Stocks. “Risky” but low returns. “home country Bias” How to determine what proportion of your investments should be in the US? Should derivatives regulations be tightened? (lawyers write regulations, don't think about consequences. Has to be done with incentives for right behavior) What is Finance? Companies (decision maker inside looking out) -How should we raise the capital: Stock or Bonds? -What should we invest in (between competing projects)? -Many other questions: dividend policy, FX risk, .... Investors (decision maker outside looking in) -which companies should I invest in? -Should I buy stock or bonds? - All of Finance on One Slide Every investment (paper or physical) is 'worth' the present discount value (PDV) Create Value; do not destroy it So how do we find or predict cash flows? How do we find the correct discount rate? Why can prices and (estimated) values differ? Finance Links savings with investment. Several thousand people decide to save $1000 each. At the same time, a company decides to build a new hotel for several million dollars- make it the same amount as the savers saved. The people who saved did not buy bricks for a backyard barbeque, meat to put on the Barbie (at least not all that they could have), new clothes to the party. What happened to all that 'stuff?”
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The bricks were used to build the hotel. The meat fed the workers and their families during construction and the clothes went to the same families- they may have wanted work clothes instead of party clothes. Markets take care of that detail. Leon bora- there are fresh vegetables in Paris every morning. (the power of markets, it solves what to make) Once the hotel is built, the company makes money from the rooms. The reason the savers can be paid more than their original amount is that there is a real resource (in this case a hotel) producing real goods and services (nights of hotel stay). The finance jobs and finance contribution to all this are 1)the company financial officers helped reach the decision to build and 2) bankers or stock brokers channeled What do you need to succeed in finance? You like solving problems Can handle basic algebra Like Numbers Strong Logic Skills THE VBA BOOK (recommended text) (learn macros) Class 2: Financial Instruments Major categories Debt-I owe yous, borrow Equity Derivatives Hybrids Financing Sequence 'Cartoon' (artist sketch with coal to get up painting) All equity-Personal Savings, family and friends.
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